Agency Appetite: A Case Study on the Impact of a Revenue Acquisition on Agency Value

• September 23, 2025

By Jarod Steed

The insurance market is starting to show signs of softening. That means that the eye-popping revenue growth numbers for independent insurance agencies from the hard market will start to settle down. Agencies looking for sustained growth will have to implement other methods to maintain the growth they experienced during the hard market.

One way to increase an agency’s valuation is through a revenue acquisition. In a revenue acquisition, the acquiring agency purchases a book of business without an expectation that the owner or operator will remain with the acquirer and produce in a meaningful way.

The acquirer’s primary benefits are the revenue of the book being acquired, which strengthens the acquirer’s position with their key carriers and keeps the competition away. It is not a talent acquisition.

Here’s a case study of a revenue acquisition: The acquirer is an agency with $1 million in revenue and a 25% EBITDA (earnings before interest, taxes, depreciation and amortization) margin and an 8.25x EBITDA multiple applied as its control valuation. The acquirer is an independent agency with exceptional customer service, a steady stream of referral business and a team including two validated producers.

The seller is a $250,000 revenue agency with a single owner and producer nearing retirement and one service employee who plans to stay on after the acquisition. The seller represents many agencies in today’s market. They are a Main Street shop, predominantly personal lines, that was built over time but is now facing a succession dilemma.

Figure 1 shows the control scenario over the next 10 years if the agency doesn’t make an acquisition and continues its organic growth at 3% annually. Fair market value (FMV) estimate is calculated as: EBITDA cash flow times the multiple of EBITDA minus liabilities.

Figure 2 shows the 10-year scenario if the first agency buys the $250,000 agency in the first year while growing its original book at 3%. The debt has been factored into the FMV calculation.

Variables to an Acquisition

If you are considering a revenue acquisition, here are five key variables, along with important questions to ask about your agency:

1) Retention of personal, commercial or employee benefit books. This is the most important factor in an acquisition. With a mostly personal lines book, the risk of not retaining a meaningful percentage of revenue after an acquisition is lower due to the higher policy count and lower premium volume per account nature. However, they are not as valuable externally.

Meanwhile, commercial and employee benefits books are currently more valuable externally but could be at a higher risk for switching agents during an ownership transition and require a greater level of account management to retain post-acquisition.

In the case study, the seller is 80%-90% personal lines. While the seller is still with the agency, 90% of the revenue is retained. After the seller retires or leaves, 85% of the original revenue is retained going forward.

Question: Does the expertise required to serve the seller’s book overlap with the expertise needed for the acquirer’s book?

For generalist personal and commercial books, the overlap of expertise is more common. Although specialized books are valuable for their rarity, they require greater work by the acquirer to understand how to win in that space. Unless they already possess expertise in a niche, the acquirer must learn how the selling agency saw success in that niche, then emulate and improve on its strategy.

2) Carrier overlap. Look for carrier overlap in your acquisition. Be sure to review the following in the due diligence process: five-year loss ratio, premium growth and average age of the clients. You want to make sure you are acquiring a book that has a long runway on the lifetime value of client equation. In the case study, the seller’s key carriers align with the acquirer.

Question: What strain would a potential book roll place on the current operations?

In unfortunate scenarios, an agency may acquire a book and then fail to become appointed with a key carrier. This is the fast track to spoiling the acquisition experience.

3) Synergy. Synergy refers to how efficiently the acquirer can assimilate the new book and talent into its existing operations. An acquirer should estimate how much additional operating expense it expects to incur on an ongoing basis for the new book.

Compensation will vary depending on the employees coming with the deal. Selling expenses will vary on whether the acquired staff members are sales or service professionals. But variable operating expenses should be fairly predictable.

Question: What is the variable operating expense to employee or revenue ratio?

One way to estimate the operating expenses is by looking at your current operating expense to revenue ratio and projecting forward. If an acquirer can assimilate a new book of business and retain it for 12%, 10% or even 5% of the net revenue gained from the acquisition, then the acquisition will result in more cash flow. The case study factored in a 15% operating cost to revenue ratio, but many agencies are more efficient than this.

4) Purchase price. Be fair, but do not overpay in this scenario. There is much strategic value in a revenue acquisition, so there is no reason to overpay for the agency. In the case study, the acquirer is paying 2.25x for the seller’s book, which means it will take the acquirer 5.28 years to break even.

Question: What is the length of time I am willing to wait to break even on my purchase?

If all other variables are managed well, the acquisition will make money for the acquirer. If your seller has multiple parties at the table, you may need to make an offer that’s outside of your comfort zone. Rather than a matter of how much you can afford, it can become a matter of how long you can afford to wait to make money.

5) Financing. The financing option used for the acquisition has significant impact on the value gained from a transaction. In the case study, the acquisition was bank-financed over a five-year period with a 7.5% interest rate. In this scenario, the best way to acquire an agency is with a two-part offer: A down payment for 50% of the agency at closing, and then a two-year holdback to be paid in years one and two based on the percentage of revenue retained.

Question: Where can your capital for the transaction come from?

If you have significant cash reserves and can afford a healthy cash-at-close payment, see if the seller would be willing to finance the rest at a rate below prime rates.

Here’s the 10-year return on investment in a self-financed acquisition compared to a bank-financed one and an investment in the S&P 500:

These numbers, when compared to an investment in the S&P 500, are not compelling. However, to get a 184.7% return assumes you have $3 million to invest over a 10-year period, which is not a common scenario for most independent insurance agency owners. A safe 65% ROI over 10 years is a fairly solid return in a business that you know intimately and significantly enhances your annual cash flow and agency value for your eventual exit.

Growth by acquisition can be an incredibly effective strategy to grow value and profits over time if you have a good acquisition and integration strategy.

There is value generated for an agency owner when they complete a revenue acquisition. Revenue acquisitions increase the baseline value of the agency—in the case study, by $1.1 million over 10 years with $130,000 added to annual profits. However, revenue acquisitions are not going to create generational wealth opportunities like strategic agency acquisitions.

In real life, revenue acquisitions may look like an emergency purchase of a friendly competitor or an owner selling with a retirement timeline of one year or less. These situations are necessary for the industry, but they are not the best long-term value creation strategies for sellers or buyers.

For agencies considering growth through acquisition, some key factors to consider include:

• Retention risk. Will the acquired clients stay? Do you have an integration plan that ensures a smooth transition of clients, carriers and staff?
• Talent pipeline. Can you integrate and retain key people?
• Financial readiness. Do you have a strategy for the financial component of the acquisition? Do you have trusted advisers to work with?
• Operational fit. Do your markets, business mix, clientele and service philosophies align?

Ultimately, a revenue acquisition is a one-time transaction. When done thoughtfully, it can compress years of organic growth into a few short years and dramatically increase an agency’s value. This requires preparation, integration and focus on the long game.

Jarod Steed is business planning and valuation analyst at IA Valuations.

The information provided is general in nature and shall not be construed as personal legal, tax or financial advice for your situation. Email contact@iavaluations.com to discuss your personal situation.

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